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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2004
Commission file number 1-5745-1
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
-------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Highway 33, Freehold, New Jersey 07728
---------------------------------------------------------------
(Address of principal executive offices)
Telephone #732-462-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ____
------
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes____ No __X__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
OUTSTANDING AT
CLASS March 10, 2004
- -------- --------------
Common Stock 986,867 shares
$1 par value
FOODARAMA SUPERMARKETS, INC.
----------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance
Sheets January 31, 2004 and November 1, 2003
Unaudited Consolidated Condensed Statements
of Operations for the thirteen weeks ended
January 31, 2004 and February 1, 2003
Unaudited Consolidated Condensed Statements
of Cash Flows for the thirteen weeks ended
January 31, 2004 and February 1, 2003
Notes to the Unaudited Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Disclosure Concerning Forward-Looking Statements
- ------------------------------------------------
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations", are, or may be
deemed to be, "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Foodarama Supermarkets, Inc. (the "Company", which may be
referred to as we, us or our) to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form 10-Q. Such potential risks and
uncertainties, include without limitation, competitive pressures from other
supermarket operators, warehouse club stores and discount general merchandise
stores, economic conditions in the Company's primary markets, consumer spending
patterns, availability of capital, cost of labor, cost of goods sold including
increased costs from the Company's cooperative supplier, Wakefern Food
Corporation ("Wakefern"), and other risk factors detailed herein and in other of
the Company's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Form 10-Q and the Company assumes no
obligation to update the forward-looking statements or to update the reasons
actual results could differ from those projected in such forward-looking
statements.
2
PART I. FINANCIAL INFORMATION
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
January 31, November 1,
2004 2003
(Unaudited) (1)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 6,180 $ 5,252
Merchandise inventories 49,758 49,224
Receivables and other current assets 11,202 12,043
Prepaid and refundable income taxes 2,513 3,404
Related party receivables - Wakefern 6,799 13,684
------- -------
76,452 83,607
------- -------
Property and equipment:
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 53,849 49,039
Equipment 146,251 142,021
Property under capital leases 130,420 130,420
Construction in progress 2,738 6,846
------- -------
334,786 329,854
Less accumulated depreciation and
amortization 126,837 122,339
------- -------
207,949 207,515
------- -------
Other assets:
Investments in related parties 16,173 16,173
Goodwill 1,715 1,715
Intangible assets, net 1,072 1,098
Other 3,405 3,264
Related party receivables - Wakefern 1,913 1,874
------- -------
24,278 24,124
------- -------
$308,679 $315,246
======== ========
(continued)
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 1, 2003.
See accompanying notes to the consolidated condensed financial statements.
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands except share data)
January 31, November 1,
2004 2003
(Unaudited) (1)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,744 $ 7,916
Current portion of long-term debt,
related party 852 920
Current portion of obligations under
capital leases 1,577 1,622
Current income taxes payable 2,499 1,415
Deferred income taxes 2,162 2,162
Accounts payable:
Related party-Wakefern 42,804 37,506
Others 12,811 14,622
Accrued expenses 14,346 13,485
-------- --------
84,795 79,648
-------- --------
Long-term debt 42,778 55,335
Long-term debt, related party 2,855 3,055
Obligations under capital leases 121,750 122,159
Deferred income taxes 2,719 2,749
Other long-term liabilities 13,427 13,278
-------- ---------
183,529 196,576
-------- ---------
Commitments and Contingencies (Note 6)
Shareholders' equity:
Common stock, $1.00 par; authorized
2,500,000 shares; issued 1,621,767 shares;
outstanding 986,867 shares 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (859) (952)
Retained earnings 50,779 49,539
Accumulated other comprehensive income:
Minimum pension liability (3,164) (3,164)
-------- --------
52,546 51,213
Less 634,900 shares at January 31, 2004 and
November 1, 2003, held in treasury, at cost 12,191 12,191
------- -------
40,355 39,022
------- -------
$ 308,679 $ 315,246
========== =========
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 1, 2003.
See accompanying notes to the consolidated condensed financial statements.
4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(In thousands - except share data)
13 Weeks Ended
--------------------------
January 31, February 1,
2004 2003
--------- -----------
Sales $ 294,715 $ 257,091
Cost of goods sold 217,615 192,334
--------- ----------
Gross profit 77,100 64,757
Selling, general and
administrative expenses 71,343 61,891
--------- ---------
Earnings from operations 5,757 2,866
--------- ---------
Other income (expense):
Interest expense (3,784) (2,321)
Interest income 27 37
---------- ----------
(3,757) (2,284)
---------- ----------
Earnings before income tax provision 2,000 582
Income tax provision (760) (233)
---------- ----------
Net income $ 1,240 $ 349
========== ==========
Per share information:
Net income per common share:
Basic $ 1.26 $ .35
========= ==========
Diluted $ 1.22 $ .34
========= ==========
Weighted average shares outstanding:
Basic 986,867 986,550
========= ==========
Diluted 1,013,049 1,016,482
========= ==========
Dividends per common share -0- -0-
========= ==========
See accompanying notes to the consolidated condensed financial statements.
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows - Unaudited
(In thousands)
13 Weeks Ended
January 31, February 1,
2004 2003
--------- --------
Cash flows from operating activities:
Net income $ 1,240 $ 349
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 4,685 3,832
Amortization, intangibles 26 52
Amortization, deferred financing costs 177 115
Amortization, deferred rent escalation (76) (79)
Provision to value inventory at LIFO 280 155
Deferred income taxes (30) 133
Amortization of deferred compensation 124 77
(Increase) decrease in
Merchandise inventories (814) (2,588)
Receivables and other current assets 261 (556)
Prepaid and refundable income taxes 891 (518)
Other assets (318) 28
Related party receivables-Wakefern 6,846 3,461
Increase (decrease) in
Accounts payable 3,487 7,698
Income taxes payable 1,084 421
Other liabilities 1,055 1,307
-------- --------
18,918 13,887
-------- --------
Cash flows from investing activities:
Decrease in construction advance due from landlords 6,061 2,343
Increase in construction advance due from landlords (5,481) (498)
Cash paid for the purchase of property and equipment (3,861) (8,150)
Cash paid for construction in progress (1,258) (2,009)
Deposits on equipment - (156)
--------- ---------
(4,539) (8,470)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 2,359 5,595
Principal payments under long-term debt (15,088) (9,983)
Principal payments under capital lease obligations (454) (415)
Principal payments under long-term debt,
related party (268) (215)
Deferred financing and other costs - (18)
Proceeds from exercise of stock options - 10
--------- ---------
(13,451) (5,026)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 928 391
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,252 4,280
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,180 $ 4,671
========= =========
See accompanying notes to the consolidated condensed financial statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
- ----------------------------------------------------------------
Note 1 Basis of Presentation
- -------------------------------
The unaudited Consolidated Condensed Financial Statements as of or for the
period ending January 31, 2004, have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and rule 10-01. The balance sheet at November 1, 2003
has been taken from the audited financial statements at that date. In the
opinion of the management of the Company, all adjustments (consisting only of
normal recurring accruals) which are considered necessary for a fair
presentation of the results of operations for the period have been made. Certain
financial information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The reader is referred to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended November 1, 2003.
At both January 31, 2004 and November 1, 2003, approximately 81% of merchandise
inventories are valued by the Last-In-First-Out ("LIFO") method of inventory
valuation while the balance of inventories is valued by the First-In-First-Out
("FIFO") method. If the FIFO method had been used for the entire inventory,
inventories would have been $3,015,000 and $2,735,000 higher than reported at
January 31, 2004 and November 1, 2003, respectively.
Certain reclassifications have been made to prior year financial statements in
order to conform to the current year presentation.
These results are not necessarily indicative of the results for the entire
fiscal year.
Note 2 Adoption of New Accounting Standards
- ---------------------------------------------
In December 2003, the Financial Accounting Standards Board issued SFAS No. 132
(revised 2003), "Employers' Disclosures about Pensions and Other Postretirement
Benefits - an amendment of FASB Statements No. 87, 88, and 106" ("SFAS 132").
The revised Statement retains the disclosure requirements contained in SFAS 132
but requires additional disclosures about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. The annual disclosure requirements under this
Statement are effective for the Company's fiscal year ending October 30, 2004,
and the quarterly disclosure requirements are effective for the Company's
interim periods beginning with the second quarter ending May 1, 2004. The
implementation of SFAS 132, as revised in 2003, is not expected to have a
material impact on the Company's consolidated financial statements.
Note 3 - Stock-Based Compensation
- ---------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options. Under this method,
compensation cost is measured as the amount by which the market price of the
underlying stock exceeds the exercise price of the stock option at the date at
which both the number of options granted and the exercise price are known.
In accordance with SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation
is as follows:
7
Thirteen Weeks
Ended
------------------------
(In thousands, except
per share amounts)
------------------------
January 31, February 1,
2004 2003
------------------------
Net income - as reported $ 1,240 $ 349
Add:
Stock-based employee compensation
expense, determined under the
intrinsic value method, included in
reported net income, net of related
tax effects 54 56
Deduct:
Adjustment to total stock-based
employee compensation expense
determined under the fair value
based method, net of related tax
effects (74) (76)
--------- --------
Pro forma net income $ 1,220 $ 329
========= ========
Earnings per share:
Basic, as reported $ 1.26 $ .35
========= ========
Basic, pro forma $ 1.24 $ .33
========= ========
Diluted, as reported $ 1.22 $ .34
========= ========
Diluted, pro forma $ 1.20 $ .32
========= ========
Note 4 - Goodwill and Other Intangible Assets
- ---------------------------------------------
The Company completed its annual impairment test prescribed by SFAS 142 and
concluded that no impairment of goodwill existed as of November 2, 2003. The
gross carrying amount and accumulated amortization of the Company's other
intangible assets as of January 31, 2004 and November 1, 2003 are as follows:
8
January 31, 2004 November 1, 2003
------------------- -------------------
(In thousands)
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------- ------------ ------ ------------
Amortized Intangible
Assets
Bargain Leases $3,918 $ 3,066 $3,918 $ 3,040
Unamortized Intangible
Assets
Liquor Licenses 220 - 220 -
-------------------------------------------
Total $4,138 $ 3,066 $4,138 $3,040
===========================================
Amortization expense recorded on the intangible assets for the thirteen weeks
ended January 31, 2004 and February 1, 2003 was $26,000 and $52,000,
respectively. The estimated amortization expense for the Company's other
intangible assets for the current and four succeeding fiscal years is as
follows:
Fiscal Year (In thousands)
----------- --------------
2004 $106
2005 106
2006 106
2007 106
2008 106
Thereafter 348
Note 5 - Long-term debt
- -----------------------
On January 30, 2004 the Company completed the financing for the purchase of
$1,100,000 of equipment for the expanded and renovated store location in East
Brunswick, New Jersey. The note bears interest at 6.20% and is payable in
monthly installments over its five year term.
Note 6 - Commitments and Contingencies
- --------------------------------------
The Company previously reported, in Item 3. Legal Proceedings and Note 14 of
Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for
its fiscal year ended November 1, 2003, on the settlement of a shareholders
derivative action commenced by Melvin Jules Bukiet et al ( together the
"Plaintiffs" ) against the Company,as nominal defendant, and against all five
members of the Board of Directors, Joseph J. Saker, Richard J. Saker, Charles T.
Parton, Albert A. Zager and Robert H. Hutchins (together, the "Defendants"), in
their capacities as directors and/or officers of the Company. The Plaintiffs'
have applied for an award of legal fees of $975,000 in connection with the
settlement of the derivative action. We believe that the amount of the award of
attorneys fees sought by the Plaintiffs is unreasonable based upon the outcome
of the litigation, and are vigorously contesting the Plaintiffs' fee
application. The Company's directors and officers liability insurance carrier
has reserved its rights under the Company's directors and officers liability
insurance policy with respect to the claims made in the derivative action,
including claims for the Plaintiffs' attorneys' fees and costs of the defense,
and has preliminarily advised us that certain of the claims made in the
derivative action and related legal expenses are not, in the insurance carrier's
view, covered by the policy. The Company is awaiting the Courts decision on the
application for legal fees. It is not possible, at this juncture, to predict the
amount of fees that may be awarded or whether or to what extent any such fees
and the Company's legal expenses for defending the derivative action will be
covered by its directors and officers liability insurance policy. The Company
has not accrued in its financial statements for legal fees and expenses which
may be incurred in connection with this legal proceeding. Net income and EBITDA
in fiscal 2004 may be adversely affected to the extent that the Company's
defense costs and any legal fees that may be awarded are not covered by
directors and officers liability insurance.
9
Part I - Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ---------------------
Critical Accounting Policies and Estimates
- ---------------------------------------------------
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company's critical accounting policies relating to the impairment of
goodwill, patronage dividends earned as a stockholder of Wakefern, pension plans
and workers' compensation insurance are described in the Company's Annual Report
on Form 10-K for the year ended November 1, 2003. As of January 31, 2004 there
have been no material changes to any of the critical accounting policies
contained therein.
Financial Condition and Liquidity
- ---------------------------------
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement serves as our primary funding source for working capital and
capital expenditures. The Credit Agreement is secured by substantially all of
the Company's assets and provided for a total commitment of up to $80,000,000,
including a revolving credit facility (the "Revolving Note") of up to
$35,000,000, a term loan ("the Term Loan") in the amount of $25,000,000 and a
capital expenditures facility (the "Capex Facility") of up to $20,000,000. As of
January 31, 2004 the Company owed $18,750,000 on the Term Loan and $12,000,000
under the Capex Facility.
On January 30, 2004 the Company completed the financing for the purchase of
$1,100,000 of equipment for the expanded and renovated store location in East
Brunswick, New Jersey. The note bears interest at 6.20% and is payable in
monthly installments over its five year term.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of January 31, 2004:
Actual
(As defined in the
Financial Covenant Credit Agreement Credit Agreement)
- --------------------------------------------------------------------------------
Adjusted EBITDA (1) Greater than $22,000,000 $ 26,013,000
Leverage Ratio (1)(2) Less than 3.0 to 1.00 2.08 to 1.00
Debt Service Coverage
Ratio (3) Greater than 1.10 to 1.00 2.20 to 1.00
Adjusted Capex (4) Less than $6,595,000 (5) (7) $ 587,000 (6)
Store Project Capex Less than $32,515,000 (5) (7) $ 4,532,000 (6)
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases and changes in the
LIFO reserve.
10
(2) The Leverage Ratio is calculated by dividing the current and non-current
portions of Long-Term Debt and Long-Term Debt Related Party by Adjusted
EBITDA.
(3) The Debt Service Coverage Ratio is calculated by dividing Operating Cash
Flow by the sum of adjusted net interest expense, which excludes interest
on capitalized leases, the current provision for income taxes and
regularly scheduled principal payments, which exclude principal payments
on capitalized leases. Operating Cash Flow is calculated by subtracting
amounts expended for property and equipment which are not used for
projects in excess of $500,000 ($209,000 in the first quarter of fiscal
2004) from Adjusted EBITDA.
(4) Adjusted Capex is all capital expenditures other than New/Replacement
Store Project Capex.
(5) Represents limitations on capital expenditures for fiscal 2004.
(6) Represents capital expenditures for fiscal 2004.
(7) Includes amounts available but not used in the prior fiscal year and
available to be carried forward to fiscal 2004: $495,000 for Adjusted
Capex and $4,768,000 for Store Project Capex.
No cash dividends have been paid on the Common Stock since 1979, and the Company
has no present intentions or ability to pay any dividends in the near future on
its Common Stock. The Credit Agreement does not permit the payment of any cash
dividends on our Common Stock.
Working Capital
- ---------------
At January 31, 2004, the Company had a working capital deficiency of $8,343,000
as compared to working capital of $3,959,000 at November 1, 2003 and a working
capital deficiency of $11,677,000 at February 1, 2003. Since the end of fiscal
2003, working capital declined and a deficiency was created as a result of the
collection of related party receivables from Wakefern related to the fiscal 2003
patronage dividend receivable and the increase in related party accounts payable
to Wakefern resulting from increased sales and the deferral of payment for
Wakefern promotional programs. Funds used to pay these accounts payable will
come from the revolving credit facility thereby increasing the Revolving Note
which is classified as long-term borrowings. This will result in a corresponding
increase in working capital.
During fiscal year 2002, the Business Tax Reform Act was passed in the State of
New Jersey. This legislation is effective for tax years beginning on or after
January 1, 2002 (Fiscal 2003). Corporate taxpayers are subject to an
"Alternative Minimum Assessment ("AMA"), which is based upon either New Jersey
Gross Receipts or New Jersey Gross Profits, if the AMA exceeds the tax based on
net income. We have included in our current tax provision the effect of the AMA.
The AMA increased our cumulative State current tax liability, net of Federal tax
benefit, by $1,676,000. Additionally, in March 2002 and May 2003 The Job
Creation and Worker Assistance Act of 2002 and The Jobs and Growth Tax Relief
Reconciliation Act of 2003 ("Tax Acts") were passed by the United States
Congress. The current Federal tax benefit for accelerated depreciation resulting
from the Tax Acts is approximately $3,266,000 for fiscal 2003 and the first
quarter of fiscal 2004 and is reflected in our prepaid and refundable income
taxes.
The Company normally requires small amounts of working capital since inventory
is generally sold at approximately the same time that payments to Wakefern and
other suppliers are due and most sales are for cash or cash equivalents.
11
Working capital ratios were as follows:
January 31, 2004 .90 to 1.0
November 1, 2003 1.05 to 1.0
February 1, 2003 .85 to 1.0
Cash flows (in millions) were as follows:
Thirteen Weeks Ended
-----------------------
1/31/04 2/1/03
------- ------
Operating activities $ 18.9 $ 13.9
Investing activities (4.5) (8.5)
Financing activities (13.5) (5.0)
------- -------
Totals $ .9 $ .4
======= ========
The Company had $15,864,000 of available credit, at January 31, 2004, under its
revolving credit facility. The Company has capital commitments (net of landlord
contributions of $11,863,000) of $5,011,000 for leasehold improvements and
$11,072,000 for equipment related to two stores which are under construction and
one store which is being expanded and remodeled. One of these is a replacement
store, one is a new store and one is an expansion and remodeling of an existing
store. All of these projects are located in central New Jersey, are or will be
World Class stores and have opened or are expected to open in the second and
third quarters of fiscal 2004. The amounts available under the Credit Agreement
will adequately meet our operating needs, scheduled capital expenditures and
debt service for fiscal 2004.
For the 13 weeks ended January 31, 2004 depreciation was $4,685,000 while
capital expenditures totaled $5,119,000, compared to $3,832,000 and $10,159,000,
respectively, in the prior year period. The increase in depreciation was the
result of a full quarter of depreciation for the equipment and leasehold
improvements for the four new locations opened in fiscal 2003, the new bakery
facility and the expansion and remodeling of the East Brunswick store
substantially completed in the quarter ended January 31, 2004, as well as six
additional capitalized real estate leases. Capital expenditures in the first
quarter of fiscal 2004, consisting of the acquisition of equipment and leasehold
improvements for the two locations presently under construction and one location
being remodeled, decreased as compared to capital expenditures in the first
quarter of fiscal 2003 when two new locations opened and the bakery commissary
and two additional stores were under construction.
12
The table below summarizes our contractual obligations at January 31, 2004, and
the effect such obligations are expected to have on liquidity and cash flow in
future periods.
Payments Due By Period
- --------------------------------------------------------------------------------
Less Than 2-3 4-5 After 5
Contractual Obligations Total 1 Year Years Years Years
- --------------------------------------------------------------------------------
(Dollars In Thousands)
Long-term debt $ 50,522 $ 7,909 $15,582 $ 27,031 $ -
Related party debt 3,707 894 1,546 1,267 -
Capital lease obligations 297,625 13,724 27,573 27,047 229,281
Operating leases 66,250 9,936 17,068 12,599 26,647
Purchase obligations -
leaseholds and equipment 16,083 16,083 - - -
Lease commitments - stores
under construction (1) 62,150 1,243 4,972 4,972 50,963
--------- ------- ------- -------- ------
Total $ 496,337 $49,789 $66,741 $ 72,916 $306,891
========= ======= ======= ======== ========
(1) Represents contractual obligations which we expect to perform in the
periods presented based upon the anticipated openings of stores in fiscal
2004. It is not possible to determine precise dates for anticipated store
openings, and actual opening dates may vary from the anticipated dates.
Results of Operations (13 weeks ended January 31, 2004 compared to 13 weeks
- --------------------- ended February 1, 2003)
Sales:
- ------
Sales for the current period totaled $294.7 million as compared to $257.1
million in the prior year period. This represents an increase of 14.6%. Sales
for the current quarter included the operations of the new locations opened in
December 2002, January 2003, May 2003 and October 2003 in Woodbridge, Ewing,
North Brunswick and Hamilton New Jersey, respectfully. The locations in
Woodbridge and North Brunswick replaced older, smaller stores.
Same store sales from the twenty stores in operation in both periods increased
3.6%. Comparable store sales increases were partially offset by decreased sales
in certain of the Company's stores affected by competitive store openings and
the impact from the opening of several of our new locations.
Gross Profit:
- -------------
Gross profit as a percent of sales increased to 26.2% in the first quarter of
fiscal 2004 compared to 25.2% for the comparable period in fiscal 2003.
Patronage dividends, applied as a reduction of the cost of goods sold, were $2.4
million in the current year period compared to $1.9 million in the prior year
period. The improvement in gross profit was the result of improved product mix,
the contribution of the new locations opened in fiscal 2003, increased patronage
dividends and a reduction in Wakefern assessment as a percentage of sales. These
increases were partially offset by programs implemented in certain of the
Company's stores to address competitive store openings.
13
Operating Expenses:
- -------------------
Selling, general and administrative expenses as a percent of sales were 24.2%
versus 24.1% in the prior year period. The increase in selling, general and
administrative expenses as a percent of sales was primarily due to increases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits increased .16%, selling expense increased
..11%, supplies increased .05%, depreciation, including depreciation on
capitalized leases, increased .10%, administration increased .08% and
miscellaneous income decreased .07%. These increases were partially offset by a
decrease in occupancy of .11% and pre-opening expense of .30%. The increase in
labor and related fringe benefits was the result of additional personnel for the
new locations, increased sales in service intensive departments and contractual
increases in fringe benefits. The decrease in occupancy was primarily the result
of several leases which were accounted for as operating leases being replaced by
capitalized leases. This decrease was partially offset by an increase in utility
costs. Pre-opening costs decreased since there were no grand openings in the
first quarter of fiscal 2004 as compared to two grand openings in the comparable
period in fiscal 2003.
Interest Expense:
- -----------------
Interest expense increased to $3,784,000 from $2,321,000, while interest income
was $27,000 compared to $37,000 for the prior year period. The increase in
interest expense for the current year period was due to a net increase in
average outstanding debt, including capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
- -------------
An income tax rate of 38% has been used in the current period as compared to 40%
in the prior year period. The tax rate used is based on the expected effective
tax rates.
Net Income:
- -----------
Net income was $1,240,000 in the current year period compared to $349,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $10,569,000 as compared to
$6,786,000 in the prior year period. Net income per common share on a diluted
basis was $1.22 in the current year period compared to $.34 in the prior year
period. Per share calculations are based on 1,013,049 shares outstanding in the
current year period and 1,016,482 shares outstanding in the prior year period.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
14
Thirteen Weeks Ended
--------------------
January 31, 2004 February 1, 2003
---------------- ----------------
Net income $ 1,240,000 $ 349,000
Add:
Interest expense, net 3,757,000 2,284,000
Income tax provision 760,000 233,000
Depreciation 4,685,000 3,832,000
Amortization 127,000 88,000
----------- ------------
EBITDA $10,569,000 $ 6,786,000
=========== ============
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Except for indebtedness under the Credit Agreement which is variable rate
financing, the balance of our indebtedness is fixed rate financing. We believe
that our exposure to market risk relating to interest rate risk is not material.
The Company believes that its business operations are not exposed to market risk
relating to foreign currency exchange risk, commodity price risk or equity price
risk.
Item 4. Controls and Procedures
- ---------------------------------
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this quarterly report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's
President and Chief Executive Officer along with the Company's Chief Financial
Officer, who concluded that the Company's disclosure controls and procedures are
effective. The Company's Vice President - Internal Audit and Principal
Accounting Officer also participated in this evaluation. During the Company's
last fiscal quarter, there has been no significant change in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
15
PART II OTHER INFORMATION
- -----------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits:
Exhibit 31.1 Section 302 Certification of Chief Executive Officer
Exhibit 31.2 Section 302 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
(b) Reports on Form 8-K
On November 5, 2003, the Company filed a current report on Form 8-K
with the United States Securities and Exchange Commission ("SEC"),
pursuant to Item 5 thereof, reporting that (i) its founder, Joseph
J. Saker, had decided to step down as the Company's Chief Executive
Officer but will continue as executive Chairman of the Company's
Board of Directors; (ii) Richard J. Saker, President and Chief
Operating Officer of the Company, will succeed his father as Chief
Executive Officer; and (iii) the Company's Board of Directors
approved the terms of a two year employment agreement with Joseph J.
Saker.
On November 12, 2003, the Company filed a current report on Form 8-K
with the SEC, pursuant to Item 5 thereof, reporting that the Company
entered into two settlement agreements with Levin Properties, L.P.
On January 29, 2004, the Company filed a current report on Form 8-K
with the SEC, pursuant to Item 12 thereof, reporting the Company's
consolidated financial results for its fourth quarter and year ended
November 1, 2003.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
-----------------------------
(Registrant)
Date: March 15, 2004 /S/ MICHAEL SHAPIRO
-----------------------
(Signature)
Michael Shapiro
Senior Vice President
Chief Financial Officer
Date: March 15, 2004 /S/ THOMAS H. FLYNN
----------------------
(Signature)
Thomas H. Flynn
Director of Accounting
Principal Accounting Officer
17
EXHIBIT 31.1
CERTIFICATION
I, Richard J. Saker, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 12, 2004 /s/ RICHARD J. SAKER
--------------------
(Signature)
Richard J. Saker
Chief Executive Officer
18
EXHIBIT 31.2
CERTIFICATION
I, Michael Shapiro, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 12, 2004 /s/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
19
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended January 31, 2004 (the
"Report"), I, Richard J. Saker, Chief Executive Officer of the Company, do
hereby certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of ss. 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: March 12, 2004 /s/ RICHARD J. SAKER
--------------------
(Signature)
Richard J. Saker
Chief Executive Officer
20
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended January 31, 2004 (the
"Report"), I, Michael Shapiro, Chief Financial Officer of the Company, do hereby
certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of ss. 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: March 12, 2004 /s/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
21